Carlsberg may not be Habeco's only option

The government is seeking to equitize Habeco, the country’s second-largest brewer, by selling its 82% stake. Carlsberg, which already owns 17% of the company, holds priority purchase rights for a 60% stake.

In October, the government said it would announce the results of negotiations on its priority purchase rights with Carlsberg by the end of that month. It is not clear why the process has been drawn out.

“We have not been able to make a bid,” the Danish brewer’s CEO, Mr. Cees ‘t Hart, told Reuters, adding that he expects to submit a bid in March or April. There was also uncertainty over whether the Vietnamese Government will abide by Carlsberg’s first right of refusal, he said.

So what might have actually gone wrong in the negotiation between Carlsberg and the Ministry of Industry and Trade over additional Habeco’s shares?

A price disagreement almost certainly exists. The government announced in August it wants to sell its 82% stake for US$404 million, or about VND48,000 (US$2.11) a share, which according to CEO of Carlsberg Vietnam, Mr. Tayfun Uner, is a reasonable valuation, or VND50,000 (US$2.2) per share; the same price it paid in the 2008 IPO.

The government is now keen to take the market price as a reference for the deal. After switching from the Unlisted Public Company Market (UPCoM) to the Ho Chi Minh Stock Exchange (HoSE) on January 19, shares in Habeco rose 15% in their first day of trading to VND147,000 (US$6.51) from a starting price of VND127,600 (US$5.63), valuing the Vietnamese brewer at US$1.5 billion.

But a 21.1% year-on-year decline in Habeco 2016 net profit to VND740.1 billion (US$32.7 million) saw its share price head down. After the February 9 trading session, its shares closed at VND114,000 (US$5.03). While price is driven by market demand and supply, the surge in the company’s share price did not accurately reflect the underlying value of the business and is mainly due to speculative buying on very thin volumes, Mr. Uner said.

Another reason why negotiations could fall apart is that the Vietnamese Government may have more than just one potential buyer. “We have first right of refusal, but if they neglect that for any reason, and we do not have any signal that they will, then we may not be able to buy it,” Mr. Hart said.

While the partnership agreement signed in 2008 is still legally binding, some of the terms are no longer appropriate under current law. According to a lawyer with knowledge of the agreement, the selection of a single foreign strategic investor for the majority of the stake may be in conflict with regulations in the Competition Law and the Trade Law or the criteria for State divestment from joint stock companies.

Still, the government has no choice but to sell Habeco as soon as possible. “Letting incapable people continue on the brewer’s management board will eventually destroy the brand and the company, while a fast sale does not necessarily mean Habeco will be let go at a cheap price,” Mr. Nguyen Hoang Hai, Vice Chairman of the Vietnam Association of Financial Investors (VAFI), told VET by phone on February 9.

With a young, beer-loving population, Vietnam is among Asia’s largest consumer of beer, putting it on the radar of international brewers. The country’s beer market grew at an average compound annual rate of 7% from 1999 to 2015 and touched 4 billion liters in 2016. Growth is anticipated at around 4% to 2021, data from researchers Canadean, quoted by investment bank Liberum, showed.

Kirin Holdings, Asahi Group Holdings, Thai Beverage, Heineken, and Anheuser Busch Inbev SA are among some 20 investors that have expressed interest in the sale.

Habeco’s share price soared when a limited number of shares were listed in October, as investors raced to snap them up before the planned sale. The brewer has a market share of about 20% in Vietnam.